How far was speculation responsible for the Wall Street Crash? Speculation was one of the main factors for the Wall Street Crash. There were other reasons for the Wall Street Crash but everything is connected. The Wall Street simply over-heated; between 1924-29 the value of shares rose 5 times. The Wall Street Crash was a horrible consequence for the Americans. People that lived in America thought they were doing so well because of the roaring twenties. People could afford almost everything they wanted, they could go out and spend money and buy many consumer goods.
As the Wall Street Crash came people’s lives changed a lot and they couldn’t afford to do anything. Speculation was a trend in the late 1920’s. Many people became speculators – there were 600,000 by 1929. Speculation was a form for gambling; it meant that many people were buying shares but they didn’t keep these shares for long. They borrowed more money so they could buy more shares and then sell them when the prices had gone up again. Some firms, which were not safe investments, floated shares, but people still bought them. They expected to make a profit out of them.
The American economy was doing very well and as it was doing so well there were more share buyers than sellers and the value of shares was rising. There were other factors that helped cause the Wall Street Crash and these factors are all connected. There was poor distribution between rich and poor. The problem was that the rich people were making millions but the poor were making nothing. There was also mal distribution of wealth, which led to the Wall Street Crash. A major cause of the depression was the inequality of wealth in America.
There were some extremely rich people, and huge numbers of extremely poor people – the top 5% owned a third of the wealth, while 40 per cent of the population were living in poverty. There was barely any middle class and that was a problem in America because it was not fair that some people were making huge amounts of money. American industries were overproducing. There were too many consumer goods on the market. For example an industry was making a vast amount of refrigerators, families in America bought refrigerators but after they bought one they didn’t buy anymore because they didn’t need it.
As there were such vast amounts of consumer goods there was no one left to buy them. As there was no one that could buy these consumer goods the prices fell. America wasn’t exporting its goods and wasn’t importing any. There were ‘protective tariffs’ and these tariffs lead to not having any export or import. America was becoming isolated because America only wanted the goods that were made in the country to be sold. Another important factor was that banks made a decision not to support share prices. Banks themselves were involved in speculation and they did nothing to hold it back.
American banks had lent $ 9 billion for speculating in 1929. Everyone was buying shares and selling them when the prices had gone down. Not only rich people but poor people as well. There were too many shares on the market and no one could buy them. The main problem was that there were so many shares on the market and there wasn’t enough demand for them. There was corruption between the banks and the brokers what this basically meant was that some greedy people were making money of innocent people and they were another factor for the Wall Street Crash. One thing that was very vital was confidence.
People needed to trust banks and if there was confidence the prices will keep on rising and not falling, there would have been more buyers than sellers and that is what a country needs not the opposite. The problem is that if the prices stop rising because there is no confidence there will be more sellers than buyers and then the whole system will crash. That is what happened with the Wall Street Crash there were many more sellers than buyers. At the end of the First World War USA were sick of the involvement in the war. They didn’t want to be a part of the League of Nations because of that there were high tariffs and little trading.
Another cause for the Wall Street Crash was depression, because prohibition of alcohol was introduced and people had to hide and buy alcohol illegally. Speculation was one of the main factors for the Wall Street Crash along with the other factors. But speculation was one of the biggest and most important factors. The other factors were important but there wasn’t as major. This is because even with tariffs, over production and corruption a country can survive. Speculation causes loss of confidence and loss of faith – that leads to uncertainty and that leads to Depression.